By Leika Kihara and Rie Ishiguro TOKYO, May 23 (Reuters) - The Bank of Japan kept monetarypolicy steady on Wednesday, saving ammunition for later in caseEurope's deepening debt crisis warrants further supportiveaction to shield the fragile economy. But it warned of risks to Japan's recovery prospects, suchas strong uncertainty over the global economy and market strainsover Europe's sovereign debt crisis, in a sign it stands readyto act again soon should markets destabilise and trigger arenewed spike in the yen. "Global financial markets have been jittery recently due toEurope's debt problems, so we must monitor developmentscarefully for now," the BOJ said in a statement issued after themeeting. Fears of a Greek exit from the euro zone and funding strainsin Spain have kept Japanese central bankers on edge as they fretabout the damage the relentless yen gains and slumping Tokyoshare prices could inflict on the export-reliant economy. In a sign that support from global growth remains wobbly,the country's exports rose just 7.9 percent in April from a yearearlier, slower than a median forecast of 12.7 percent due tofalling shipments to China. "The BOJ stood pat as expected but is likely to ease next inJuly, based on recent patterns," said Yasuhide Yajima, chiefeconomist at NLI Research Institute in Tokyo. "Japan is likely finding it more difficult than before tointervene in the currency market given international pressure,so if the yen spikes to around 77 to the dollar, the BOJ may actfirst through monetary policy to weaken the yen." As widely expected, it kept the size of its asset buyingprogramme unchanged at 40 trillion yen ($504 billion) andmaintained its policy rate at a range of zero to 0.1 percent.OUTLOOK MURKY While the BOJ is ready to loosen policy again on any signsthat Japan's recovery is under threat, it had good reason tokeep policy on hold now and save its limited options for later. Japan's economy rebounded in the first quarter from lastyear's stagnation and is seen headed for a recovery due tospending for rebuilding from last year's earthquake, making itdifficult to justify easing now. The BOJ is also struggling to force-feed funds to marketsalready awash with cash, failing to meet its target forgovernment bond buying twice last week. Any future easing will likely take the form of a furtherincrease in the asset buying programme. In doing so, the BOJ mayhave to target bonds with longer durations to draw enough bidsfor its bond buying auctions. That is something the central bank wants to put off for aslong as possible as it would bind its policy for longer than itprefers and make an exit from ultra-easy policy more difficult. Even if the BOJ refrains from easing at its next review inJune, many analysts expect it to ponder easing in July when itissues revised quarterly economic and price forecasts that mayshow Japan is still distant from achieving 1 percent inflation. The BOJ eased policy via an increase in asset purchases inFebruary and April in a largely symbolic move aimed at showingimpatient politicians and markets its determination to achieveits 1 percent inflation target set in February.